State of the Union 2012: Obama emphasizes economic fairness & shared responsibility
Denouncing the growing income inequality in the United States, President Barack Obama called for economic fairness to help the nation rebuild and reclaim the American promise in his 2012 State of the Union address.
“The defining issue of our time is how to keep [the American] promise alive. No challenge is more urgent. No debate is more important,” said Obama. “We can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.”
In his annual speech to Congress, Obama urged lawmakers to repeal the Bush era tax breaks for the wealthy and reform the tax code to ensure that high-income earners pay their fair share of taxes.
As expected, Obama’s tax proposals were attacked by Republicans, who accused him of waging “class warfare.”
“No feature of the Obama presidency has been sadder than its constant efforts to divide us, to curry favors with some Americans by castigating others,” said Indiana Gov. Mitch Daniels, who delivered the GOP’s response to the President’s address.
Mitt Romney’s 14.6% tax rate
But the President’s call for a fairer tax code was bolstered by revelations that Gov. Mitt Romney paid less than 15% in taxes despite reporting more than $20 million in annual income.
“You can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense,” said Obama without directly mentioning Romney.
Tax returns released by the Romney campaign revealed that the Republican presidential contender paid only $6.2 million (or 14.6%) in taxes while reporting a combined income of $42.6 million in 2010 and 2011. Romney paid $3 million or 13.9% in taxes for his income of $21.7 million in 2010. For 2011, Romney estimates he’ll pay about $3.2 million or 15.3% in taxes for his income of $20.9 million. Romney’s charitable contributions amounted to $7 million, of which at least $4.1 million went to the Mormon church. (Click here to read the Washington Post’s analysis of Romney’s tax returns.)
To put this in context, the federal income tax rate for an American making $64,500 is 14.3%, according to the Congressional Budget Office. The tax rate for top income bracket – people earning an average income of $264,700 or more – is 25.1%. Romney’s tax rate is – at times – lower than that of a full-time worker who makes $64,500 or 0.29% of Romney’s annual income.
“I pay all the taxes that are legally required and not a dollar more. I don’t think you want someone as the candidate for president who pays more taxes than he owes,” said Romney during the Republican debate in Tampa, Florida. “Is it entirely legal and fair? Absolutely.”
Bush tax cuts disproportionately benefit millionaires like Romney while adding trillions to the national debt
According to the tax returns, nearly all of Romney’s income during the past two years came from investments, stock dividends, and interests – all of which are considered capital gains. Because of the Bush tax cuts, capital gains are taxed at 15% – instead of 20% – for individuals in the top tax bracket. The Bush tax cuts also halved the tax rate for dividend income, or payments to corporate shareholders, capping the rate at 15% instead of 39%. On top of the capital gains and dividend income rate reductions, the Bush tax cuts lowered the taxes for the top income bracket by another 4.7%.
“Tax rates for the highest-income households declined after 2000. The decline was especially rapid in 2003, when a reduction in the tax rate for the top bracket enacted in 2001 took effect and further changes in law reduced tax rates on dividends and realized capital gains,” according to the Congressional Budget Office.
The Bush era tax policies have greatly benefitted the top 1%, worsening the income disparity in the United States. In 2007, the top 1% accounted for more than 20% of the total income in the United States; the top 1% accounted for only 10% back in 1979.
Furthermore, the Bush tax cuts have already added more than $1.7 trillion to the national debt between 2001 and 2010. Making the Bush tax cuts permanent would grow the national debt by another $3.1 trillion in the next decade, according to a 2010 study by the Pew Economic Policy Group.
Even so, Republicans have steadfastly blocked any efforts to repeal the Bush tax cuts for the wealthy and have insisted on reducing the national debt exclusively through drastic spending cuts on programs like Social Security, Medicare, and Medicaid.
“We don’t begrudge financial success in this country. We admire it. When Americans talk about folks like me paying my fair share of taxes, it’s not because they envy the rich. It’s because they understand that when I get a tax break I don’t need and the country can’t afford, it either adds to the deficit, or somebody else has to make up the difference – like a senior on a fixed income, or a student trying to get through school, or a family trying to make ends meet. That’s not right. Americans know that’s not right,” said Obama. “This generation’s success is only possible because past generations felt a responsibility each other, and to the future of their country, and they know our way of life will only endure if we feel that same sense of shared responsibility. That’s how we’ll reduce our deficit. That’s an America built to last.”
- WhatTheFolly.com: Transcript of President Barack Obama’s 2012 State of the Union address
- WhatTheFolly.com: Transcript of the GOP response to the President’s 2012 State of the Union address
- WhatTheFolly.com: How the 2001 & 2003 Bush tax cuts benefit the wealthy
- WhatTheFolly.com: America’s growing income inequality
- C-Span.org: Video of the Republican presidential debate in Tampa, Florida on Jan. 23, 2012
- WashingtonPost.com: Mitt Romney releases tax returns
- CBO.gov: Average Federal Tax Rates
- PewTrusts.org: Decision Time: Fiscal Effects of Extending the 2001 and 2003 Tax Cuts (PDF)
Category: Analysis, Banking & Finance, Congress, Current Events, Economy, Election 2012, News, Politics, Tax Policies, U.S. · Tags: Bush tax cuts, capital gains, Congressional Budget Office, deficit, deficit reduction, dividends, drastic budget cuts, election, election 2012, federal income tax, GOP, high deficits, income, income and wealth gap, income inequality, income security, Medicaid, Medicare, Mitch Daniels, Mitt Romney, national debt, presidential election 2012, Republican, Republican Party, Republican primary, Republicans, Social Security, SOTU, State of the Union 2012, tax benefit, tax breaks, tax cuts, taxes, top income earners, U.S. tax reform